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Copyright 2012 - Larry Gaines |2

FFUUTTUURREESS TTRRAADDIINNGG!!

All About Futures & E-Mini Futures ~

what you need to know….

Larry Gaines, Founder


Table of Contents Characteristics of Futures……………………………3 Overview of the main futures traded………….6 What are Equity Index Futures…………………..7 The Markets………………………………………………….9 Favorites to trade ~ E-Mini S&P & E-Mini

NASDAX 100~ Advantages…………………………..14

Future Market Advantages…………………………15

Futures Margin Rates………………………………….18

Contract Specifications……………………………….22

OCO ~ Futures Trading Execution………………27


All About Futures ~ what you need to know…. Characteristics of Futures A futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price. But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commodities - remember, buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods (which is the primary activity of the cash/spot market). That is why futures are used as financial instruments by not only producers and consumers but also speculators.


The consensus in the investment world is that the futures market is a major financial hub, providing an outlet for intense competition among buyers and sellers and, more importantly, providing a center to manage price risks. The futures market is extremely liquid, risky and complex by nature, but it can be understood if we break down how it functions. In the futures market, margin has a definition distinct from its definition in the stock market, where margin is the use of borrowed money to purchase securities. In the futures market, margin refers to the initial deposit of "good faith" made into an account in order to enter into a futures contract. This margin is referred to as good faith because it is this money that is used to debit any day-to-day losses.


When you open a futures contract, the futures exchange will state a minimum amount of money that you must deposit into your account. This original deposit of money is called the initial margin. When your contract is liquidated, you will be refunded the initial margin plus or minus any gains or losses that occur over the span of the futures contract. In other words, the amount in your margin account changes daily as the market fluctuates in relation to your futures contract. The minimum-level margin is determined by the futures exchange and is usually 5% to 10% of the futures contract. These predetermined initial margin amounts are continuously under review: at times of high market volatility, initial margin requirements can be raised. The initial margin is the minimum amount required to enter into a new futures contract, but the maintenance margin is the lowest amount an account can reach before needing to be replenished. For example, if your margin account drops to a certain level because of a series of daily losses, brokers are required to make a margin call and request that you make an additional deposit into your account to bring the margin back up to the initial amount.


Overview of the main futures traded

There are many quality futures markets around the world. Below are some but not all of the Futures markets that can be traded using the PCFDTM. I would recommend the main U.S. Equity Index markets to start with.

Figure 1

For active traders, the favorite and most popular futures markets, however, are the Equity index futures. While they all move in the same direction, there are differences in them that allow traders to match these markets to their personalities.


What are the Equity Index Futures?

Equity index futures are designed to trade in relation to a specific equity index which is comprised of a basket of securities. These products allow traders to speculate and hedge risk associated with these markets. Why Equity Index Futures?


The following is a unique combination of features that offers retail and institutional traders fantastic opportunity:

• Significant Tax Benefit • Advantages of Stocks & Mutual funds combined • Lower Margin costs • Low Commissions • Highly Liquid Investments • Huge Volume • Transparency • Near 24-Hour Trading (except for a 15 minute period for

settlement) • Hedging • Portfolio Diversification • Lower risk than stocks (reduced overnight gap risk)


The Markets

S&P Mini

• Very popular • Highest volume / Most liquid • $50.00 per point per contract (Example: If you buy 1 S&P E-

mini Futures contract at 1365.00 and sell it at 1370.00, you made $250.00)

• Represents a basket of stocks (S&P 500) • Very orderly market because of its high volume • Ideal for the more conservative trader

NASDAQ Mini

• Solid volume • $20.00 per point per contract • Represents a basket of NASDAQ stocks • Orderly market but larger swings partly because of lower

volume than the S&P


DOW Mini

• Low volume which means large swings in price, very volatile

• $5.00 per point per contract but don't let that fool you, it is volatile

• Represents a basket of Dow stocks • Because of low volume, you may consider doing your

analysis for this market on the S&P chart


Russell

• Low volume • Popular because of its price point, this is not a market for

conservative personalities • $100.00 per point per contract • Represents a basket of Russell stocks • The combination of low volume and the high price point

means a big money, fast moving market (not for the beginner)

DAX

• Similar to the Russell • Lower volume • Traded on the Eurex Exchange • 25.00 Euros per full point, per contract • This is a big money market that can really move so

beginners beware


FESX

• Saving one of the best for last… • Super high volume on a 100% electronic exchange

(Eurex) • 10.00 Euros per point, per contract • For those in Europe, this is a great market to trade


For more information on these and other futures markets, see the following websites:

www.cmegroup.com

www.eurexchange.com

In the world of equities, there are MANY different ways to take advantage of a move in the market. Knowing the details of the different markets helps you make the best decision based on your individual goals and requirements.


Favorites to trade ~ E-Mini S&P & E-Mini NASDAX 100~ Advantages

1. Relatively Small Trade Size. The E-mini S&P (ES)

Contract is 1/5th the size of the regular S&P Contract so a 1

point move in the market is equal to $50 per E Mini S&P

contract instead of $250 per contract for the full sized

contract.

2. The E-mini NASDAQ 100 (NQ) ~ a 1 point move in the

market is equal to $20 per E Mini NASDAQ 100. Each tick

equals $5 per contract.

3. A Completely Electronic Market. There is no open outcry

trading for the E Mini S&P (ES) or NQ contract, so all trades

are made electronically, which many traders feel puts

everyone on a more level playing field.

4. Highly Liquid Market. These contracts trade millions of

contracts a day, meaning almost 24 hour liquidity and very

low transaction costs.


Future Market Advantages

1. No Day-trading Restrictions. Unlike the stock market

where you must have at least $25,000 in your account to day-

trade, there are no such restrictions in the futures market.

2. Much Lower Margin Requirements. Day-trading margins

for the E Mini S&P go as low as $500 per contract giving

traders much more access to buying power than in the stock

market. It is important to remember here however that

leverage is a sword that cuts both ways, meaning that just as

you can increase profit potential through the use of leverage

this also increases your loss potential, something which we

will cover in future lessons.

3. No Interest Paid on Margin. Unlike the stock market

where you pay interest on margin used, you do not pay any

interest on used margin in the futures market.


4. Tax Advantages. Futures Trades are generally taxed via the

60/40 rule meaning that 60% of gains are treated as long term

capital gains and 40% are treated as short term capital gains.

For most short term traders this tax treatment is a large

advantage over the stock market, where 100% of short term

gains are taxed at the higher rate.

Now that I have covered the advantages of the futures market,

and the E Mini S&P 500 contract specifically, here are the

general details about the contract which traders will want to

know:

Trading Symbol: ES - The trading symbol for the E Mini S&P

500 contract is ES followed by the symbol for the month and

year. For example the June 2012 contract is ESM12.

Contract Size: $50 X the Index. For example, say the E Mini

S&P 500 was 1365, which would make the contract size 1365 X

$50 = $68,250.


Minimum Price Fluctuation: .25 Points or $12.50 equals 1

tick which is what the minimum price movement in a futures

contract is referred to.

Trading Hours: Market is open from Sunday Night at 5pm

Central Standard Time, until Friday at 3:15 Central Standard

time except for between 3:15-3:30 PM CST and 4:30 PM-5PM

when the market is closed for maintenance.

Contract Months: H = March, M = June, U = September, Z =

December

Last Day of Trading: 8:30 AM on the third Friday of the

contract month.


Futures Margin Rates

Stock Index

Name Symbol Exchange Initial Margin DayTrade Margin

E-mini S&P 500 Index ES CME/Globex $4,375.00 $400.00

DAX Index FDAX Eurex €13,950.00 $3,500.00

E-mini NASDAQ 100 Index NQ CME/Globex $2,500.00 $500.00

S&P 500 Index SP CME/Globex $21,875.00 $7,500.00

Russell 2000 Index Mini ($100) TF ICE Futures U.S. $6,850.00 $500.00

Dow Jones $5 Mini YM CBOT/Globex $3,125.00 $500.00

Currencies


Australian Dollar 6A CME/Globex $2,362.00 $500.00

British Pound 6B CME/Globex $2,025.00 $500.00

Canadian Dollar 6C CME/Globex $2,160.00 $500.00

EuroFX 6E CME/Globex $4,725.00 $500.00

Japanese Yen 6J CME/Globex $2,700.00 $500.00

Dollar Index DX ICE Futures U.S. $1,463.00 $500.00

E-mini EuroFX E7 CME/Globex $2,363.00 $500.00

E-mini Japanese Yen J7 CME/Globex $1,350.00 $500.00


Energies


Brent Crude Oil BRN ICE Europe $6,250.00 $1,875.00

Crude Oil CL NYMEX/Globex (NYMEXG) $6,885.00 $1,000.00

E-mini Natural Gas QG NYMEX/Globex (NYMEXG) $929.00 $500.00

E-mini Crude Light QM NYMEX/Globex (NYMEXG) $4,219.00 $500.00

E-mini Unleaded Gasoline QU NYMEX/Globex (NYMEXG) $4,250.00 $500.00

Metals


Gold GC COMEX/Globex (COMEXG) $11,475.00 $1,000.00

Copper HG COMEX/Globex (COMEXG) $5,738.00 $1,000.00

miNY Copper QC COMEX/Globex (COMEXG) $2,869.00 $500.00

miNY Silver QI COMEX/Globex (COMEXG) $10,800.00 $3,240.00

miNY Gold QO COMEX/Globex (COMEXG) $3,038.00 $500.00

Silver SI COMEX/Globex (COMEXG) $21,600.00 $6,480.00


Financials


Euro Bund 10-Year FGBL Eurex $1,400.00 $500.00

Ultra T-Bond UB CBOT/Globex $4,050.00 $1,000.00

US 30-Year Treasury Bond ZB CBOT/Globex $4,185.00 $500.00

US 5-Year Treasury Note ZF CBOT/Globex $1,215.00 $500.00

US 10-Year Treasury Note ZN CBOT/Globex $1,755.00 $500.00

Grains


Mini-Sized Corn XC CBOT/Globex $472.00 $142.00

Mini-Sized Soybeans XK CBOT/Globex $742.00 $223.00

Mini-Sized Wheat XW CBOT/Globex $810.00 $243.00

Corn ZC CBOT/Globex $2,362.00 $709.00

Soybean Oil ZL CBOT/Globex $1,688.00 $506.00

Soybean Meal ZM CBOT/Globex $2,025.00 $608.00

Soybeans ZS CBOT/Globex $3,712.00 $1,114.00

Wheat ZW CBOT/Globex $4,050.00 $1,215.00


Softs


Cocoa CC ICE Futures U.S. $1,750.00 $525.00

Cotton CT ICE Futures U.S. $8,400.00 $2,520.00

Coffee KC ICE Futures U.S. $4,970.00 $2,268.00

Lumber LBS CME/Globex $2,250.00 $675.00

Orange Juice OJ ICE Futures U.S. $5,040.00 $504.00

Sugar #11 SB ICE Futures U.S. $2,940.00 $882.00

Meats


Feeder Cattle GF CME/Globex $2,025.00 $608.00

Pork Bellies GPB CME/Globex $2,025.00 $608.00

Lean Hogs HE CME/Globex $1,688.00 $506.00

Live Cattle LE CME/Globex $1,620.00 $486.00


Contract Specifications:

Stock Index

Name Symbol Exchange Contract Size Months Tick / $ Value

E-mini S&P 500 Index

ES CME/Globex $50 x Index

Value

H,M,U,Z 0.25 / $12.50

DAX Index

FDAX Eurex €25 x Index

Value H,M,U,Z 0.5 / €12.50

E-mini NASDAQ 100 Index

NQ CME/Globex $20 x Index

Value H,M,U,Z 0.25 / $5.00

S&P 500 Index

SP CME/Globex $250 x Index

Value

H,M,U,Z 0.10 / $25.00

Russell 2000 Index Mini ($100)

TF ICE Futures U.S. $100 x Index

Value

H,M,U,Z 0.1 / $10.00

Dow Jones $5 Mini

YM CBOT/Globex $5 x Index

Value H,M,U,Z 1 / $5.00

Currencies


Australian Dollar 6A CME/Globex 100K AUD H,M,U,Z 0.0001 / $10.00

British Pound 6B CME/Globex 62.5K £ H,M,U,Z 0.0001 / $6.25

Canadian Dollar 6C CME/Globex 100K $ H,M,U,Z 0.0001 / $10.00

EuroFX 6E CME/Globex 125K € H,M,U,Z 0.0001 / $12.50

Japanese Yen 6J CME/Globex 12.5 mil ¥ H,M,U,Z 0.00001 / $12.50

Swiss Franc 6S CME/Globex 125K CHF H,M,U,Z 0.0001 / $12.50

Dollar Index

DX ICE Futures U.S. $1000 X Index

Value H,M,U,Z 0.005 / $5.00

E-mini EuroFX E7 CME/Globex 62.5K € H,M,U,Z 0.01 / $6.25

E-mini Japanese Yen J7 CME/Globex 6.25 mil ¥ H,M,U,Z 0.01 / $6.25


E-micro AUD/USD M6A CME/Globex 10K AUD H,M,U,Z 0.0001 / $1.00 AUD

E-micro GBP/USD M6B CME/Globex 6,250 £ H,M,U,Z 0.0001 / $0.625 £

E-micro USD/CAD M6C CME/Globex 10,000 CAD H,M,U,Z 0.0001/1.00 CAD

E-micro EUR/USD M6E CME/Globex 12,500 € H,M,U,Z 0.0001 / $1.25 €

E-micro USD/JPY M6J CME/Globex 10,000 ¥ H,M,U,Z .01/100 ¥

E-micro USD/CHF M6S CME/Globex 10,000 CHF H,M,U,Z .0001/1.00 CHF

Energies


Brent Crude Oil BRN ICE Europe 42K gal All 0.01 / $10.00

Crude Oil CL NYMEX/Globex (NYMEXG) 42K gal All 0.01 / $10.00

Gas Oil GAS ICE Europe 42K gal H,M,U,Z 0.0001 / $4.20

Heating Oil HO NYMEX/Globex (NYMEXG) 42K gal All 0.0001 / $4.20

Natural Gas

NG NYMEX/Globex (NYMEXG) 10,000 mmBtu All 0.001 / $10.00

E-mini Natural Gas QG NYMEX/Globex (NYMEXG) 2,500 mmBtu All 0.005 / $12.50

E-mini Heating Oil QH NYMEX/Globex (NYMEXG) 21K gal ALL 0.0001 / $2.10

E-mini Crude Light QM NYMEX/Globex (NYMEXG) 21K gal All 0.025 / $12.50

E-mini Unleaded Gasoline QU NYMEX/Globex (NYMEXG) 21K gal All 0.001 / $21.00

NY Harbor RBOB Gasoline RT NYMEX/Globex (NYMEXG) 42K gal All 0.0001 / $4.20

WTI Light Sweet Crude Oil WBS ICE Europe 42K gal All 0.01 / $10.00


Metals


Gold GC COMEX/Globex (COMEXG) 100 oz G,J,M,Q,V,Z 0.1 / $10.00

miNY Copper QC COMEX/Globex (COMEXG) 12,500 lbs All 0.002 / $25.00

miNY Silver QI COMEX/Globex (COMEXG) 2,500 oz F,G,H,K,N,U,Z 0.0125 / $31.25

miNY Gold QO COMEX/Globex (COMEXG) 50 oz F,G,J,M,Q,V,Z 0.25 / $12.50

Silver SI COMEX/Globex (COMEXG) 5,000 oz F,H,K,N,U,Z 0.005 / $25.00

Financials


Euro Bund 10-Year FGBL Eurex 100K € H,M,U,Z 0.01 / € 10.0

Ultra T-Bond UB CBOT/Globex $100K bond H,M,U,Z 1/32 / $31.25


Grains


Mini-Sized Corn XC CBOT/Globex 1,000 bu H,K,N,U,Z 1/8 / $1.25

Mini-Sized Soybeans XK CBOT/Globex 1,000 bu H,K,N,U,Z 1/8 / $1.25

Mini-Sized Wheat XW CBOT/Globex 1,000 bu H,K,N,U,Z 1/8 / $1.25

Corn ZC CBOT/Globex 5,000 bu H,K,N,U,Z 1/4 / $12.50

Soybean Oil ZL CBOT/Globex 60K lbs F,H,K,N,Q,U,V,Z 1/100 / $6.00

Soybean Meal ZM CBOT/Globex 100 tons F,H,K,N,Q,U,V,Z 0.10 / $10.00

Oats ZO CBOT/Globex 5,000 bu H,K,N,U,Z 1/4 / $12.50

Rough Rice ZR CBOT/Globex 2,000 cwt F,H,K,N,U,X 0.005 / $10.00

Soybeans ZS CBOT/Globex 5,000 bu F,H,K,N,Q,U,X 1/4 / $12.50

Wheat ZW CBOT/Globex 5,000 bu H,K,N,U,Z 1/4 / $12.50

Softs


Cocoa CC ICE Futures U.S. 10 tons H,K,N,U,Z 1 / $10.00

Cotton CT ICE Futures U.S. 50k lbs H,K,N,V,Z 0.0001 / $5.00

Milk Class III DA CME/Globex 200K lbs All 0.01 / $20.00

Coffee KC ICE Futures U.S. 37.5k lbs H,K,N,U,Z 0.0005 / $18.75

Lumber

LBS CME/Globex 110K board

feet

F,H,K,N,U,X 0.10 / $11.00

Orange Juice OJ ICE Futures U.S. 15k lbs H,K,N,U,X 0.0005 / $7.50

Sugar #11 SB ICE Futures U.S. 112k lbs H,K,N,V 0.0001 / $11.20


Meats


Feeder Cattle GF CME/Globex 50K lbs F,H,J,Q,U,V,X 0.00025 / $12.50

Pork Bellies GPB CME/Globex 40K lbs G,H,K,N,Q 0.00025 / $10.00

Lean Hogs

HE CME/Globex 40K lbs G,J,K,M,N,Q,V,Z 0.00025 / $10.00

Live Cattle LE CME/Globex 40K lbs G,J,M,Q,V,Z 0.00025 / $10.00


OCO ~ Futures Trading Execution Orders

'One-Cancels-the-Other Order - OCO'

A pair of orders stipulating that if one order is executed, then

the other order is automatically canceled. A one-cancels-the-

other order (OCO) combines a stop order with a limit order on

an automated trading platform. When either the stop or limit

level is reached and the order executed, the other order will be

automatically canceled. Seasoned traders use OCO orders to

mitigate risk. TradeStation uses the MATRIX and Ninja Trader

uses the DOME.


For example, assume you just bought 10 contracts of NQ (E-

mini NASDAQ) futures for a momentum break out trade at

$2555 per contract. You expect it to break out to the up-side

quickly and your profit target is 6 ticks or $30 per contract but

for risk mitigation, you would like to lose no more than 6 ticks

or $30 per contract. To do this use an OCO order, which would

consist of a stop-loss order to sell 10 contract at $2525 (6tick

stop-loss) and a simultaneous limit order to sell 10 contracts at

$2585 (6 tick profit take), whichever occurs first. These orders

could either be day orders or good-till-canceled orders.


Now if you are ready to learn how to trade futures please come join me and our members in my virtual trading room at Power Cycle Trading All the best,

Larry Gaines

http://powercycletrading.com


This publication is sold with the understanding that neither the publisher nor author is engaged in rendering legal, accounting, investment or other professional services. Trading and investing involves substantial risk. Financial loss, even above the amount invested, is possible and common. Seek the services of a competent professional person before investing or trading with money. By accepting this trading course you agree that use of the information of this course is entirely at your own risk. Neither the author nor the publisher is a registered investment advisor or a broker dealer. You understand and acknowledge that there is a very high degree of risk involved in trading options, futures and securities. Past results of any individual trader are not indicative of future returns by that trader, and are not indicative of future returns which may be realized by you. Neither the author nor publisher assumes responsibility or liability for your trading and investment results. This course is provided for informational and educational purposes only and should not be construed as investment advice. The author and/or publisher may hold positions in the stocks, futures or industries discussed here. You should not rely solely on this information in making any investment. The information in this course should only be used as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments and trading strategies. It should not be assumed that the information in this manual will result in you being a profitable trader or that it will not result in losses. Past results are not necessarily indicative of future results. You should never trade with money you cannot afford to lose. The information in this product is for educational purposes only and in no way a solicitation of any order to buy or sell. The author and publisher assume no responsibility for your trading results. There is an extremely high risk in trading. This course is sold “AS IS,” without any implied or express warranty as to its performance or to the results that may be obtained by using the information. Factual statements in this course are made as of the date the course was created and are subject to change without notice. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

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